Wallet –A to Z
What is cryptocurrency wallet?
If one wants to use any cryptocurrency,
they will need to have a wallet. Originally perceived as a collection of
secured digital codes1, a cryptocurrency
wallet is a software program that stores private and public keys and interacts
with various blockchain to
enable users to send and receive digital currency and keep an eye on their
balance. Earlier, the wallets were meant to
just store cryptocurrency but they have eventually evolved as a refined medium
to carry out various transactions and provide numerous additional services.
A survey in 2017 estimated the number of currently active
wallets to be between 5.8 million and 11.5 million.52% of the surveyed wallets were
found to provide facilities of exchanging currencies and 80% of those 52%
provide national to cryptocurrency exchange service. 85% of all wallets providing currency exchange
services enable the purchase and sale of national currencies, 15% provide only
cryptocurrency-to-cryptocurrency exchange services, and 23% provide both national-to-cryptocurrency
as well as cryptocurrency-to-cryptocurrency exchange services. 2 It is
interesting to note that 76 percent of incorporated3 wallet providers do
not have a license.4
How does it work?
When a digital currency is
sent, the sender is letting go of the ownership of the coins to receiver
wallet’s address. To be able to spend those coins and unlock the funds, the
private key, which is a secure digital code known to you and your wallet, must
match the public address, a public digital code connected to certain amount of currency.
If public and private keys match, the balance in receiver’s wallet will
increase, and that of the senders will decrease.
Unlike a customary real
exchange of coins, the transaction is signified only by a transaction record on
the blockchain and the wallet acts as a personal ledger of
transactions. For certain type of transactions,
a processing fee needs to be paid for certain types of transactions to network
miners as a processing fee. You can set your own fee. A lower fee transaction
may get lower priority, and the transaction may take long time to get
to their form, wallets can be categorised into three groups – software, hardware
Desktop: These wallets are downloaded on a PC or laptop. They are only accessible
from the single computer in which they are downloaded. It offers considerably
high security but runs the risk of being affected by viruses or hackers.
wallets run on the cloud and are accessible from any computing device in any
location. While they are more handy to access, online wallets store your
private keys online and are controlled by a third party who makes them more
vulnerable to hacking attacks and theft.
Mobile: These wallets run on an
app on phone and are useful because they can be used anywhere . Mobile wallets
are usually much smaller and simpler than desktop wallets because of the
limited space available on a mobile. Several attempts are being made to
increase the reach of user information and trace back the real identity of the
user particularly if the wallet was downloaded in a smartphone7
Hardware: They store a
user’s private keys on a hardware device like a USB. Although hardware wallets
make transactions online, they are stored offline which delivers increased
security. Hardware wallets can be compatible with several web interfaces and
can support different currencies. Users simply plug in their device to any
internet-enabled computer or device, enter a pin, send currency and confirm. Hardware
wallets make transactions easy while also keeping your money offline and away
from danger. Recent study nevertheless shows the possibility of these types of
wallets being equally vulnerable to hackers.8
Paper: wallets are easy to use and
highly secure. It is basically either a physical copy or printout of your
public and private keys, or a piece of software that securely generates a pair
of keys which are then printed. Transferring
currency to a paper wallet is achieved by the transfer of funds from software
wallet to the public address shown on the paper wallet. The process of transferring money from
software wallet to paper wallet is called ‘sweeping,’ can either be done manually
by entering your private keys or by scanning the QR code on the paper wallet.
Sweeping is done for purpose of spending or withdrawing the currency.
can be a multicurrency or single currency wallet.
can be hot or cold. A hot wallet is one which is connected to internet. It is
ideal for everyday purchasing and thus user can keep small amounts of its coins
in it. However it runs the risk of being hacked due to the malice of the internet.
Cold wallets store your coins offline and can be plugged in to a computer
whenever needed.9Storing of coins offline is
popularly called “cold storage”
Bread Wallet: Bread is a mobile bitcoin wallet that is easy to use and can be
downloaded from the App Store or Google Play. It offers a detached client, so
there is no server to use when sending or receiving bitcoins. Users can access their money and are in full
control of their funds at all times.Itsclean interface, lightweight design and
high focus on security, makes the application safe, fast and useful for both
beginners and experienced users alike.
Mycelium: The Mycelium mobile wallet allows iPhone and Android users to send and
receive bitcoins and keep complete control over bitcoins. With security
superior to most other apps and features like cold storage and encrypted PDF
backups, an integrated QR-code scanner, a local trading marketplace and secure chat,
Mycelium provides a host of features and qualifies as one of the best wallets
on the market specifically for advanced users.
The above wallets
however lack web or desktop interface and are hot wallets.
Copay: Created by
Bitpay, Copay is one
of the best digital wallets on the market. Copay is easily accessed through a
user-friendly interface on desktop, mobile or online. It’s a multi-signature
wallet so friends or business partners can share funds. It is useful for both beginners
and advanced users alike. However it can be slow and unresponsive with limited
Jaxx: Jaxx is a
multi-currency supporting Ether, Ether
Classic, Dash, DAO, Litecoin, REP, Zcash, Rootstock, Bitcoin wallet and user
interface. It is available on a variety of platforms and devices (Windows,
Linux, Chrome, Firefox, OSX, Android mobile & tablet, iOS mobile &
tablet) and connects with websites through Firefox and Chrome extensions. Jaxx
allows in wallet conversion between Bitcoin, Ether and DAO tokens via
Shapeshift and the import of Ethereum paper wallets. It is claimed to be an
excellent wallet given its features but the code is not open source and can be
slow to load
an open source Bitcoin desktop wallet suitable for experienced users and highly secure. Armory’s features include cold
storage, multi-signature transactions, one-time printable backups, multiple
wallets interface, GPU-resistant wallet encryption, key importing, key sweeping
and more. Although Armory takes a little while to understand, thus not suitable
Trezor:Trezor is a hardware Bitcoin wallet with a large storing capacity.
Trezor cannot be infected by malware and never exposes your private keys which
make it as safe. Trezor is open source and transparent, with all technical
decisions benefiting from wider community consultation. It’s easy to use, has
an intuitive interface and is Windows, OS X and Linux friendly. One of the few
downsides of the Trezor wallet is that it must be with you to send bitcoins.
This, therefore, makes Trezor best for inactive savers, investors or people who
want to keep large amounts of Bitcoin highly secure.
Ledger Nano: It is a new hierarchical deterministic multicurrency hardware wallet
for bitcoin users with a second security layer. It is a compact USB device
based on a smart card. It is roughly the size of a small flash drive,
measuring 39 x 13 x 4mm (1.53 x 0.51 x 0.16in) and weighing in
at just 5.9g.The process of recovering wallet from the seed can be done
without connecting the device to the computer.Besides,its quiet inexpensive
Green Address: It is a user-friendly Bitcoin wallet. Green Address is accessible via
desktop, online or mobile with apps available for Chrome, iOS, and Android.
Features include multi-signature addresses & two-factor authentications for
enhanced security, paper wallet backup and instant transaction confirmation. A
downside is that Green Address is required to approve all payments, so you do
not have full control over your spending.
Blockchain (dot) info: Blockchain is
one of the most popular Bitcoin wallets. It can be accessed from any browser or
smartphone. For the browser version, users can enable two-factor
authentication, while mobile users can activate a pin code requirement every
time the wallet application is opened. Although your wallet will be stored
online and all transactions will need to go through the company’s servers,
Blockchain.info does not have access to your private keys. This is a
well-established company that is trusted throughout the Bitcoin community .It
is but a hot wallet and has a weak privacy feature.
promotes individual ownership of money, independent of any central authority.10 Its popularity increasing to such extent that it is expected
to have applications in enhancing healthcare systems11 and building smart cities.12
there is no ruling of any third party in the matter of cryptocurrency. There are
no taxes to be paid and the transaction fees become really economical.
anonymity provided is far greater than the usual bank accounts. The requirement
of the privacy being exploited only comes in case of crime or error.
a certain degree of resistance to theft if the wallets are used righteously.
Online wallets can expose users to possible vulnerabilities to hackers but
offline wallets cannot be hacked as they aren’t connected to an online network
and don’t rely on a third party for security. 73% of surveyed wallets do not take custody of
user funds but let the user control private keys; providing full control to
of the type of wallet being used, losing private keys will lead to lose money.
There is no way to regain lost currency or reverse the transaction in case of
any problem. It’s advisable to
backup the wallet and private keys and to encrypt them. At least one backup
should be on a CD or thumb drive. If the wallet or keys are lost, the currency
connected to it is lost too. The real identity of user is not tied to its
account in a cryptocurrency wallet. He/she may use a pseudonym for representation.
However in case of a crime the identity can be traced back by authorities.13
S. Eskandari, D. Barrera, E. Stobert, and J. Clark. A first look at the
usability of bitcoin key management. In Workshop on Usable Security (USEC),
Cambridge Centre of Alternative Finance.
corporations that provide software and/or hardware wallets.
4 https://cointelegraph.com/news/key-findings-from-cambridge-cryptocurrency-study. Author:Darryn Pollock
S. Nakamoto, “Bitcoin: A peer-to-peer electronic cash system,” Available: http://
bitcoin.org/ bitcoin.pdf , 2008
Mettler, “Blockchain technology in healthcare: The revolution starts here,” in
2016 IEEE 18th International Conference on e-Health Networking, Applications
and Services (Healthcom), Sept 2016, pp. 1–3
Biswas and V. Muthukkumarasamy, “Securing smart cities using blockchain
technology,” in 2016 IEEE 18th International Conference on High Performance
Computing and Communications (HPCC/Smart City/DSS), Dec 2016, pp. 1392–1393.